Fertilizer Fears: Deja Vu All Over Again?

As during 2008 and 2009, much of the future for the ag retail marketplace hinges on the performance of the fertilizer category. As the largest component of the industry’s sales volume at $10.1 billion, fertilizer’s price collapse during mid-2008 started the ag market down the revenue decline path it just now is getting out of. And some retailers are already reporting supply problems are re-appearing.

“Supply has been the biggest concern, at many periods during the calendar year, we have been told a supplier does not have product available, or call for availability,” says Frank Schumacher, agronomy division manager for Mountain View Co-op, Black Eagle, MT. “If we do not contract tons in advance we have trouble buying in season. That said, we are always able to find product, yet we are limited on the number of tons we can buy at any time. Transportation has been tighter than recent years but not enough to cause major issues.”

Others blamed a lack of communication with grower-customers for causing some fertilizer headaches. “It is very different than it used to be,” says Rod Silver, president at Mid-West Fertilizer, Inc., Paola, KS. “The farmers stopped telling us their plans and we chose not to take full risk of inventory because of the volatility, hence the phosphorous and potassium problem.”

Could all these uncertainties lead to a repeat of 2008? Retailers are divided on this question. “Inbound fertilizer shipments have been sporadic with periods of empty bins,” says Doug Busdeker, area general manager, farm centers for The Andersons, Inc., Maumee, OH. “Pricing seems like a repeat of two years ago. Early harvests and low inventories at the start of the fall application season were a problem. Retailers will likely fill bins earlier. Whether prices crash or not seems related to world fertilizer markets, commodity prices and grower demand. Everyone is skeptical considering current higher prices and should commodity prices decrease substantially, grower demand would slow as well.”

“I am concerned about price points on fertilizer when retail price levels rise to the point where they start to limit end-user purchases,” says Wade Blowers, COO for Hamilton Farm Bureau, Hamilton, MI. “With natural gas prices remaining low, I do not see nitrogen manufactures slowing down given the manufacturing margins that are available right now. My concern would be that at what point does supply start to push over demand based on these manufacturing opportunities? This dynamic could ultimately result in downward retail price pressure, as I question if there are will be supply issues with nitrogen.”

Mountain View’s Schumacher also sees growers as the key to this question. “A crash will depend on the growers,” he says. “If they refuse to buy fertilizer at the current or higher price levels, demand will fall and it seems like the producers will have to react. Some fertilizer producers are starting to report record earnings again. That to me is an indication this is a demand driven market and they are taking full advantage of low raw material (natural gas) costs and making a healthy profit. If demand falls, they have room to reduce the price and still make a profit. Our growers are hesitant to buy fertilizer now due to the rise in price. The caveat is the corn grower who can afford to pay the price if he has $6 corn.”

In particular, some retailers point to phosphate as a potential trouble fertilizer in 2011, at least in having access enough to fill grower-customer needs. “A phosphate shortage appears to be here,” says Schumacher. “We have our largest sales period in the fall for planting winter wheat. We had a short period where phosphate was not available for seven to 10 days. We were put on allocation after that. Currently, we have to buy tons of future delivery in bits and pieces. It is questionable if there will be a winter fill program.”

However, other retailers aren’t as certain there is a shortage. “I personally don’t think so,” says Mid-West Fertilizer’s Silver. “We are the highest market in the world now, so we are attracting imports. If the market does not go too far, we should be okay as long as grain prices stay up.”